Revolution, Anyone?

This past October, news broke that UBS is in the final stages of testing a cross-asset platform from Chicago-based Townsend Analytics. The RealTick platform implementation will allow UBS clients to trade equities, futures, options, foreign exchange (FX) and fixed-income instruments for its electronic execution and prime services division. Barclays Capital has also been a cross-asset pioneer, as officials there remind us.

The day of cross-asset trading is upon us because of a convergence of factors.

For starters, profits from equities have been squeezed or worse, forcing firms to find ways to streamline IT and apply the same technology to more lucrative instruments. At the same time, there are more electronic trading choices that offer improved service as well as the finally popular FIX protocol. They are becoming the battering rams needed to tear down the empires of trading technology isolation. The days of equities technologies being separate from bonds, FX, derivatives and any combination thereof are numbered. A new mantra has been born: The technologies that make one instrument profitable should make all instruments profitable.

I predict that delivering on this new mantra will be the most gut-wrenching challenge for any firm that lusts for the top spot.

The greatest obstacle to achieving those cross-asset dreams may be from those on the business side because the technology required to support cross-asset trading is making strides just in time for a changing market. The growing array of IT options for cross-asset splicing will compel executives to tear down walls and dump legacy platforms. Firms without legacy infrastructures will be getting on the bandwagon, as did HSBC, with a new discipline for its trading technology infrastructure development as chronicled in the pages of Dealing with Technology. The new discipline is described as an asset-class-agnostic, core reference architecture, dubbed Finance Instrument Enterprise Resources for Consolidation and Execution, or Fierce.

The Fierce methodology will dominate the bank's development efforts for many years to come, says Kevin Bourne, managing director, global head of execution trading at HSBC. Bourne is quick to point out that equity trading business executives at HSBC have given their blessing to the cross-asset efforts. In addition, the long-term adherence to Fierce "breaks down the inter-product politics completely because there is 100 percent dependence upon each other's platforms," Bourne says.

So, with the help of CIOs and CTOs, the CEOs, COOs and CFOs will have to get religion about cross-asset trading. Trading groups have to agree to either share their technology or abandon their systems for the chosen platform of the firm.

HSBC knows this. "The state-of-the-art now allows you to go at it at a more rapid, comprehensive pace," says James T. Leman, managing director, head of Americas, electronic equities trading, HSBC Securities (USA) in New York. "The current sophistication of the market also dictates that a bit."

Essentially, this means the C-level boys and girls must have the stomach for revolution.

Eugene Grygo is editor of Dealing with Technology and can be reached at eugene.grygo@incisivemedia. For your free 6-issue trial to DWT, visit www.dealingwithtechnology.com.